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This week’s episode covers the final rule implementing further revisions to the Buy American Act, a proposed rule that would amend the FAR to account for recent changes in the Small Business Administration’s regulations, the NIST Secure Software Development Framework, and the first False Claims Act settlement under the DOJ’s Civil Cyber-Fraud Initiative, and is

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2021 was another busy year in False Claims Act enforcement and litigation. Significant decisions were issued across the circuits, spanning government dismissal authority, materiality, scienter, Rule 9(b) pleading standards, the Eighth Amendment’s Excessive Fines Clause, and more. The year also saw proposed amendments introduced by Senator Chuck Grassley aimed at strengthening the statute and overruling

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In an issue of first impression, the Eleventh Circuit Court of Appeals recently held that the Excessive Fines Clause of the Eighth Amendment to the Constitution applies in non-intervened False Claims Act (FCA) qui tam lawsuits in Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288 (11th Cir. 2021).  While the Eleventh Circuit

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In U.S. ex rel. Foreman v. AECOM, the U.S. Court of Appeals for the Second Circuit confirmed that the materiality factors set forth by the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar apply to all types of False Claims Act claims and reinforced the relator’s heavy burden even at the pleading stage. This precedential opinion provides several key takeaways for defendants facing FCA liability where the significance of the allegations to the government’s payment decision is in doubt.

Foreman involved a contract to provide maintenance and management support services for the Army, including tactical vehicle and equipment maintenance, facilities management and maintenance, supply and inventory management, and transportation services. The alleged violations stemmed from the contractor submitting timesheets with improper labor hours, failing to properly log and track government property, and hitting a consistently low man-hour utilization (“MHU”) rate—the ratio of time personnel would spend actively engaged in maintenance projects. After the government declined to intervene, the district court dismissed the relator’s claims for failure to plausibly allege materiality.

On appeal, the Second Circuit largely affirmed the district court, while reversing only as to the allegations of labor overcharging due to the lower court’s improper reliance on a document not incorporated into the complaint. The Court’s discussion with respect to the other allegations provides important guidance as to the materiality analysis and the burdens that apply at the pleading stage.

Continue Reading Second Circuit Reinforces the Relator’s Burden to Plead Materiality

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In Tolliver Group, Inc. v. United States, No. 2020-2341, 2021 WL 5872256 (Fed. Cir. Dec. 13, 2021), the Federal Circuit vacated and remanded the Court of Federal Claims’ (“COFC”) decision holding that the contractor was entitled to an equitable adjustment for damages caused by the Government’s breach of the implied warranty that satisfactory contract

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In its recent decision Polansky v. Executive Health Resources Inc., No. 19-3810 (3d Cir. Oct. 28, 2021), the U.S. Court of Appeals for the Third Circuit became the most recent to weigh in on the circuit split regarding the Government’s authority to dismiss False Claims Act (“FCA”) qui tam actions pursuant to 31 U.S.C. § 3730(c)(2)(A). Siding with the Seventh Circuit’s recently-adopted approach, the Third Circuit held that Federal Rule of Civil Procedure 41(a) applies to government dismissals in FCA qui tam actions the same as it would in any other suit. In doing so, the Third Circuit cemented what is now a three-way split regarding the standard the Government must meet to exercise its dismissal authority, rejecting both the D.C. Circuit’s approach, that the Government’s dismissal power is unfettered, and the Ninth Circuit’s approach that the motion to dismiss must have a “rational relation” to a valid government purpose. In the same opinion, the Third Circuit also entered the fray on a second, related split, siding with the Sixth and Seventh Circuits in finding that the Government must intervene in FCA suits before moving to dismiss. In contrast, the D.C., Ninth, and Tenth Circuits do not require the Government to intervene before moving for dismissal of an FCA suit at any point in the litigation.

The qui tam action in Polansky accused Executive Health Inc. of systematically enabling its client hospitals to over-admit patients by certifying inpatient services that should have been provided on an outpatient basis and then billing those services to Medicare. The relator filed the complaint in 2012 under seal where it remained for two years until the Government declined to intervene. After the declination, the relator continued the suit until 2019 when the Government notified the parties that it intended to dismiss the action pursuant to its authority under § 3730(c). The United States District Court for the Eastern District of Pennsylvania granted the Government’s motion over the relator’s objection, and the relator subsequently appealed to the Third Circuit.
Continue Reading Tipping the Scales: Third Circuit Weighs in on Circuit Split Regarding the Government’s Dismissal Authority Over False Claims Act Qui Tams

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A panel of the U.S. Court of Appeals for the Fifth Circuit recently rejected an argument advanced by two subsidiaries of a nationwide health care “watchdog” that the government improperly moved to dismiss two False Claims Act (FCA) lawsuits in U.S. ex rel. Health Choice Alliance LLC et al. v. Eli Lilly & Co. Inc. et al., No. 19-40906 (5th Cir. Jul. 7, 2021).  The relators accused Bayer Corp. and Eli Lilly & Co. Inc. of participating in a kickback scheme by offering free patient-education services to providers in exchange for providers prescribing their products in violation of the Anti-Kickback Act and the FCA.  The government initially declined to intervene in the cases, then a year later, notified the relators that it intended to move to dismiss and detailed its concerns about the viability of the cases.  After two-and-a-half months of negotiations with the relators, the government moved to dismiss the cases pursuant to its authority under 31 U.S.C. § 3730(c)(2)(A), citing, among other things, its two-year investigation into the relators’ cases.  The District Court granted the motions and the relators appealed.

Before undertaking its substantive analysis under the FCA, the Fifth Circuit analyzed whether it had jurisdiction to hear the relators’ appeal.  Though the relators and government agreed that there was appellate jurisdiction, the Fifth Circuit identified a potential issue based on the timeline of two events: (1) relators’ voluntary dismissal without prejudice; and (2) the District Court’s order granting the government’s motion to dismiss.  Specifically, the Fifth Circuit analyzed whether the relators’ voluntary dismissal eight months prior to the government’s motion to dismiss deprived the District Court of the ability to issue a final appealable order.  The Fifth Circuit declined to create a Circuit split on the question, and concluded “that the prior without-prejudice dismissals did not deprive the district court’s subsequent decision of finality.”

Continue Reading Fifth Circuit Declines to Take a Side in the FCA Circuit Split on DOJ’s Dismissal Authority Pursuant to 31 U.S.C. § 3730(c)(2)(A)

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In U.S. ex rel. Howard v. Caddell Construction Company, Inc., 2021 WL 1206584 (E.D.N.C. Mar. 30, 2021), the District Court for the Eastern District of North Carolina held that status reports certifying compliance with subcontracting rules do not constitute false claims under the False Claims Act (“FCA”) because the claims were not relevant to the contract payments.
Continue Reading Subcontracting Status Reports, Even if False, Are Not Claims Under the FCA

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On June 3, 2021, the district court judge in U.S. ex rel. Conyers v. Halliburton Co. et al., reversed on reconsideration a prior ruling that a kickback presumptively inflates a contract price under the False Claims Act (FCA). The court previously held that the government was entitled to a rebuttable presumption that kickbacks received by a former employee of the prime contractor, Kellogg Brown & Root (KBR), inflated the contract price under the False Claims Act. The judge revised that ruling, citing to a factual dispute over whether the kickback actually inflated the amount the government paid to reimburse KBR for its subcontract costs. The dispute centered on the falsity element of the FCA and whether KBR submitted, or caused to be submitted, a false claim for payment to the government. The revised decision is consistent with other FCA case law holding that falsity cannot be predicated on a presumption, and that the government must prove that kickbacks actually inflated the contract price.
Continue Reading District Court Reverses Course on Whether Kickbacks Presumptively Inflated Government Costs Under the False Claims Act

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In its recent decision, CVE Appeal of First State Manufacturing, Inc., SBA No. CVE-184-A (2021), the Small Business Administration Office of Hearing and Appeals (OHA) denied an appeal of a decision by the Department of Veterans Affairs Center for Verification and Evaluation (CVE) to cancel First State Manufacturing, Inc.’s verification of service-disabled veteran-owned small business (SDVOSB) status. CVE issued its Notice of Verified Status Cancellation based on concerns of present responsibility related to a consent judgment entered into merely a month before to resolve a False Claims Act (FCA) lawsuit against First State that required First State to pay over $393,000. Prior to the FCA lawsuit, First State’s Vice President for Marketing/Contract Administration and Chief Executive Vice President/Chief Financial Officer were criminally charged, pled guilty, and were sentenced to prison terms for bribing an Amtrak official to win federal Government contracts. In the appeal before OHA, First State argued that CVE erred in cancelling its verified SDVOSB status for two reasons: (1) the FCA consent judgment was based upon an underlying FCA settlement agreement that did not admit liability or wrongdoing by First State; and (2) the Federal Railway Administration, which oversees Amtrak funding, determined that First State was “presently responsible,” and that the likelihood of future harm to the Government did not warrant suspension or debarment. First State further argued that as the Federal Railway Administration is the agency with the potential injury, its determination of present responsibility should have been given greater deference by CVE.
Continue Reading False Claims Act Consent Judgment Prompts Termination of SDVOSB Status Even Without an Admission of Liability